Key Takeaways
A fragile ceasefire in the Middle East has exposed a sharp divide between Washington’s hopes for a swift oil market recovery and expert warnings of a protracted disruption that could last for years.
A top White House economic advisor projected that energy markets could rebound quickly once the Strait of Hormuz reopens, but industry analysts argue the conflict has inflicted damage on regional infrastructure so severe it cannot be easily reversed. The opposing views highlight deep uncertainty over the global energy supply outlook, even as U.S.-Iran negotiations advance. Brent crude remains elevated near $96 a barrel, reflecting the significant supply still trapped by the standoff.
“Many market participants aren’t coming to terms with the type of destruction of the war,” Helima Croft, head of global commodity strategy at RBC, said at an Institute of International Finance event. Croft noted it isn’t a “light switch” to bring production back online, a view echoed by S&P’s chief economist.
The primary obstacle to a rapid recovery is the widespread physical damage to energy facilities across the Gulf. During the six-week conflict, Iranian missiles and drones struck approximately 80 energy infrastructure sites, with a third of them suffering damage so severe it could take two to three years to repair, according to Croft. The attacks forced an estimated 11 million barrels per day of oil production offline and shuttered Qatar’s entire liquefied natural gas (LNG) output.
Even with a peace deal, the conflict has shattered the long-standing taboo against targeting vital economic infrastructure in the Gulf. For decades, a fragile understanding prevented direct confrontation that would devastate shared economic interests. That deterrence has now been eliminated, creating a new and unstable reality for the region’s producers and their international customers.
The war revealed the profound vulnerability of the Gulf’s energy export infrastructure. For Saudi Arabia, the world’s largest crude exporter, even its primary bypass route proved susceptible. The East-West Pipeline, built to carry 7 million barrels per day of crude to the Red Sea, was hit shortly after the ceasefire, cutting its throughput by about 700,000 barrels per day.
Simultaneously, the UAE’s oil export pipeline to the port of Fujairah outside the strait was also struck. For other major producers like Qatar and Kuwait, the Strait of Hormuz remains their only export outlet, leaving them with no alternatives. Iran’s unprecedented closure of the waterway, through which nearly 20% of global oil and LNG normally passes, has proven that Tehran can seal off the region with limited military effort.
This new risk calculus strikes at the core of the Gulf’s economic model, which depends on the uninterrupted flow of energy exports. The conflict is forcing a painful reassessment for major importers, particularly in Asia, about their dependence on the region. This will likely accelerate a global shift away from Middle East fossil fuels that was already underway.
For Gulf producers, the threat of future closures is unsustainable. “The strait must be open - fully, unconditionally and without restriction. Energy security and global economic stability depend on it,” Sultan Al Jaber, CEO of UAE state oil company ADNOC, said last week. The region’s major powers are unlikely to accept a strategic reality where Iran can hold their economies hostage, pointing to a heightened risk of future confrontation. While investors may have welcomed the ceasefire, the most likely outcome is not a return to the old order but a new normal defined by higher risk and strategic realignment.
This article is for informational purposes only and does not constitute investment advice.
